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Chapter 4

ECO1104- Chapter 4.docx

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Department
Economics
Course
ECO1104
Professor
A L L
Semester
Fall

Description
Chapter FourAnother Economic ModeloConsidered the bread and butter of microeconomicsPurposeoTo analyze the allocation of the production of goods and services across industries of the economyIt responds to the Q question What goods and services should be produced and in what quantitiesThe Demand FunctionoDf price consumer preferences income prices of related goods expectations of futre price andor incomeTable of data displayed in Figure 41Price is the most important factorDefinitionsoQuantity DemandedTotal amount of a good or service that all consumers are able and willing to buy given a price per unit of timeIt is a point on the horizontal axis of the DEMAND CURVEoDemandTotal relationship between Price Pand quantity demanded QdIts graph is the DEMAND CURVEoIntuitively think of a hypothetical surveyIf the going price werehow many units would you be able and willing to buy each weekThis relationship must be estimated As we will see producers estimate demand using trial and erroroWe are abstracting from all other possible influences on total demand and thus concentrating on the relationship between P and Qd
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